Why Casey's Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of convenience-store chain Casey's General Stores (NASDAQ: CASY) jumped as much as 12% today and finished up 5.5%, after posting second-quarter earnings.

So what: The report wasn't anything to write home about. Net income actually fell 13% on a 7.2% jump in sales, and earnings per share met estimates at $0.85 a share. Revenue was in line as well. Same-store sales of groceries, gasoline, and cigarettes fell slightly, by less than a 1%, while prepared foods were a bright spot, with comps gaining 10.1%. Much of the other drop in same-store sales came from lower gasoline margins and a cigarette excise tax in Illinois, one of its key markets.

Now what: Casey's is healthier than the 13% drop in net income would indicate, though. Operating expenses increased by 10.6% in the quarter because of investing in remodeling stores, opening new locations, and converting stores to 24-hour service. The jump in the share price seemed to come from the gains in the prepared-food category, which is by far the highest-margin segment for Casey's, with gross margins at 62.5%, compared with just 15% overall. The segment has grown stronger than expected thanks to "expanded hours, pizza delivery, and major store deals." Watch that figure going forward, as it should help drive future profitability, and now contributes 32% of gross profits.

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